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A protracted $5 million fee fight between William Lerach’s law firm and objectors in a San Francisco securities case could form a test run of criminal allegations that a retired Palm Springs, Calif., lawyer took kickbacks from law firms to act as a professional plaintiff. A state appellate court order in February to recalculate the $5 million fee award to the Lerach firm and two others, has blown up into a demand for discovery into the “truth of the substance” of a federal indictment charging attorney Seymour Lazar with accepting kickbacks for acting as a representative plaintiff in 50 cases. The Los Angeles federal indictment mentions, but does not charge, a “New York law firm” widely reported to be the former Milberg Weiss Bershad Hynes & Lerach. Last year, Lerach and Melvyn Weiss split up and Lerach formed his own San Diego firm, Lerach Coughlin Stoia Geller Rudman & Robbins. ‘Unfounded and baseless’ Lerach’s firm and two others represented Lazar and two other named plaintiffs in the 1997 derivative action against BankAmerica Corp. “I asked the court to allow us to conduct discovery to see if what the indictment says is true, and if it is true, if [Lazar] had a long-term deal with Milberg Weiss and the Lerach people, he was not a proper plaintiff, and the fee should be reduced,” said Charles D. Chalmers, a Fairfax, Calif., solo practitioner who represents class objectors. In response, Lerach attorney Frank Janecek, a partner at Lerach’s law firm, said in court papers that the discovery centers on “unfounded and baseless” assertions that Lazar may be disqualified if he was “promised a split of plaintiffs’ counsel fees.” Janecek said that counsel confirmed to the court that there “were no referral fee agreements,” and none of the three plaintiffs in the litigation received any “direct or indirect compensation.” The lawsuit, filed eight years ago as a derivative shareholder suit, accused directors of BankAmerica Corp. of failing to properly manage bank practices. It followed a suit by the state of California in which the bank paid $187.5 million to settle 1995 claims that the bank failed to return $1 billion in unclaimed interest on bonds and double-charged for services. The derivative suit settled with the bank agreeing to change internal practices and pay $5 million in fees to the lawyers. The plaintiff shareholders got no money. Chalmers’ clients, shareholders Angelo and Mary Perone, challenged the fees and won an appellate court order commanding recalculation for fairness in Robbins v. Alibrandi, 127 Cal. App. 4th 438 (2005). Chalmers argues the fees should be closer to $2 million. Lawrence Schonbrun, a solo practitioner based in Berkeley, Calif., and the attorney for another objector, said that lawyers in these suits are supposed to be loyal to shareholders, but that would be compromised if the indictment is true in that Lazar’s payment was linked to what class counsel was paid. He said the dispute also exposes a larger problem. The conduct, called illegal in the Los Angeles indictment of Lazar, has now moved into the mainstream. Courts now approve incentive payments for shareholders who act as lead plaintiffs, according to Schonbrun. As for the fees in the current case, Schonbrun complained that the time records show one employee, who worked 30 minutes, was paid at a rate of $190 an hour “for moving boxes.” “This is a kind of incredible arrogance that these law firms have so little fear of what the judges are going to do that they are willing to write down they spent 120 hours preparing for a 10-minute appellate argument and want $190 an hour to move boxes. This is no different than Enron gaming the system,” he said.

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